QuoteMedia, Inc.
Q2 2023 Earnings Call Transcript

Published: 15 Aug 2023

[Operator:]

Good day, everyone, and welcome to today's QuoteMedia Q2 Results Conference Call. [Operator Instructions] Please note this call will be recorded [Operator Instructions].

[It is now my pleasure to turn the conference over to Brendan Hopkins. Please go ahead.:]

[Brendan Hopkins:]

Thank you, everyone, for joining us and taking the time. We have a brief safe harbor, and then we'll get started.

[Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results.:]

[With that said, I would like to turn the call over to Dave Shworan, CEO of QuoteMedia.:]

[David Shworan:]

Thanks, Brendan. Welcome, everybody, and thank you for joining us. We're pleased to announce that we achieved a 10% increase in revenue in Q2 over Q2 of last year. If we do a forex-neutral comparison and remove the impact of the decline in the Canadian dollar, and that would put our true comparable at an increase of 13% for the quarter.

[We have a strong Canadian client base but we also have similar level of Canadian expenses with offices in Canada. So fortunately, the fluctuation in the foreign exchange rate has a minimal effect on our bottom line.:]

[We performed a lot of development work for clients over the last few months. In fact, you can see our deferred revenue increased by nearly $650,000 since January. This is work that was billed and paid for, but due to accounting rules will be reported in future quarters.:]

[We're also pleased that our gross profit as a percent of our top line revenue has increased by nearly 3.5% and our EBITDA improved around $300,000 over the Q2 of last year. In the quarter, we continued to roll out services to new clients. We continued our developments on new products and data catering to our -- the needs of our clients. We maintained our focus on new data delivery, interactive content and data APIs as well as expanding on trading services and providing enhancements to our Quotestream product line. We're happy with our growth and foresee continued success in future quarters.:]

[I'll now pass the mic to Keith Randall, so he can take us through the numbers for the quarter and then we can answer any questions that you have.:]

[Keith Randall:]

Thank you, Dave, and welcome, everyone. I'll start with the income statement. Note that all comparisons are on a year-over-year basis unless otherwise noted. Overall, we had a 10% increase in total revenue for the quarter. On an FX-neutral basis, our revenue growth was 13% as our revenue was negatively impacted by the decline in the Canadian dollar since the comparative period. Calculating revenue growth on an FX-neutral basis translates our Canadian dollar revenue at the average exchange rate of the comparative period.

[In general, our new products continue to gain traction in the market, which has allowed us to attract some larger customers we've recently signed. Breaking down our revenue. Our total Quotestream revenue increased by 4% due to a 9% increase in Corporate Quotestream revenue, resulting from increases in both the number of customers and average revenue per customer since the comparative period. Our individual Quotestream revenue decreased by 12% due to a decrease in subscribers and the decline in the Canadian dollar as approximately [ 50% ] of our individual Quotestream revenue is earned in Canadian dollars.:]

[Interactive content revenue, which is web display content, increased 16%, mainly due to an increase in the average size of our customer base due to the larger contracts recently signed. Our cost of revenue consists of fixed and variable stock exchange fees and other data costs and amortization of capitalized development costs. Our cost of revenue increased 3% for the quarter. This was mainly due to increased amortization expense associated with capitalized costs related to improving infrastructure, new product development, data collection and the expansion of our global market coverage. Overall, our cost of revenue decreased as a percentage of sales, increasing our gross margins from 51% from 47% in the comparative period. Improvement is mainly due to higher gross margins associated with new contracts signed since the comparative period.:]

[Our total operating expenses increased 11% during the quarter. Most of the increase relates to additional personnel hired to achieve our expansion objectives, including improvements made to our infrastructure, security and business continuity management. Sales and marketing expenses increased 11% and development expenses increased 29%, primarily due to the additional personnel hired since the comparative period. The increases were offset by the decline of the Canadian dollar as most of our sales and development personnel are located in Canada. G&A expenses were relatively flat, decreasing 2%. Our net income for the quarter was $73,000 compared to a loss of $163,000 in the comparative period, an improvement of $236,000.:]

[In addition, we incurred $60,000 in noncash stock-based compensation expense related to the fair value adjustment of our preferred stock warrant liability. We expect our net income to improve for the remainder of the year as costs normalize and our revenue grows. Our adjusted EBITDA was $808,000 compared to $508,000 in the prior period, an improvement of $300,000. Please refer to the reconciliation included in our press release for the calculation of adjusted EBITDA.:]

[Turning now to our balance sheet and cash flow statement. Our cash totaled $740,000 at quarter end, which was a $262,000 increase from our year-end cash balance of $478,000. Our deferred revenue totaled $1.8 million at quarter end, an increase of $642,000 since year-end. The future costs associated with realizing that revenue are minimal as the majority of our deferred revenue relates to setup and development work already completed. Those setup and development fees have been deferred over the service contract term to which they relate. Our year-to-date net cash flow from operations was $1.9 million, while net cash used in investing activities was $1.6 million primarily due to spending on infrastructure and product development.:]

[Looking forward to the remainder of the year, based on revenue already under contract and new opportunities currently in a discussion phase, we expect similar revenue growth and improved profitability for fiscal 2023.:]

[Thank you. And I'll now pass it back to Dave.:]

[David Shworan:]

Thank you, Keith. So we're now happy to open up the call for any questions that you may have. And if you have future questions after the call, please feel free to reach out to Brendan Hopkins, his e-mail address is [e-mail]. So if there's any questions, please let us know.

[Operator:]

[Operator Instructions] Our first question comes from Michael Kupinski.

[Michael Kupinski:]

So the trend line for individual Quotestream improved in the quarter, was that due to any specific marketing push? Or was that just organic growth? And I have some longer questions here.

[David Shworan:]

Well, I think it's probably a combination. We have been doing a marketing push as well as I think we're just seeing good organic growth as well. So it's probably a combination.

[Michael Kupinski:]

Okay. In the last quarter, you indicated that you increased headcount in sales and marketing to support attracting larger clients. Any success there? Can you talk a little bit about what you're seeing?

[David Shworan:]

Yes. Well, we're certainly seeing success with the larger clients. More and more bigger firms are coming to us for proposals and doing RFPs and analyzing their spends with our competitors and seeing what we can do about it. So yes, certainly, we're seeing very good growth in contacts coming in. And so expanding our sales team is very important. So we're starting an expansion, we've already started it, and we're going to continue to expand in some other cities as well. So that's our goal for this next few months is to get some more expansion in our sales team.

[Michael Kupinski:]

Related to that, we were anticipating a pickup in revenue growth in the back half of the year. I think because of some large client wins that you had, now it appears that you believe that revenue growth would be similar to Q2. Can you just talk about what might have changed or maybe the business environment that you're looking at, at this point?

[David Shworan:]

Yes. I mean we're still seeing growth. I mean there's a bunch of different factors that come into play. Obviously, the Canadian dollar affects us, we did have some individual credit or some things that maybe Keith can comment that we had some single expense lines or refunds for certain things. We had some clients that I think the trend is a little bit to decrease their spend with the exchanges. So now that there's lots of different options for exchange fees, we do have clients that are switching to different exchange level data. Our fees are still the same, QuoteMedia is still making the same money, but our -- so our net is still good, but our -- but the gross might drop because they're spending less on exchange fees. So there's those types of things as well. Is there anything else, Keith?

[Keith Randall:]

That's basically it. Yes. We just had some onetime adjustments. And unfortunately, the nature of our revenue is recurring. So it's hard to make up for those adjustments. And then, yes, we have some clients that have changed their data, which are just pass-through fees for the most part. So it doesn't really impact our bottom line, just the top line revenue.

[Michael Kupinski:]

So that the pass-through on that does not affect the gross margins because they were down a little bit in the first quarter, a little lighter than what I was looking for. Do you have any thoughts in terms of what we should do in terms of gross margin outlook for the balance of the year?

[Keith Randall:]

Yes, I'm expecting a tick up in gross margin percentage, so a small improvement for the remainder of the year.

[Michael Kupinski:]

Okay. And then just one final question. Can you talk about the marketing services that are provided by Bravenet? And there appears in the 10-Q that there is a balance owed to you. Keith, I was just wondering if you can kind of speak to that and what that might be related to.

[Keith Randall:]

That's been cleared up. That's just basically because in some cases, we use -- it's really not me. It's just a credit card in my name. So that's basically the reason for that. So it's just [ the balance ] at the moment.

[Michael Kupinski:]

All right. Got you. Could you remind me what Bravenet is? And -- the marketing services company it says, but can you kind of just describe to me what it does?

[Keith Randall:]

Dave?

[David Shworan:]

Yes. I can explain that. Sure. Yes. So it's -- basically, it's doing all of the marketing online, the AdWords programs, the SEO optimization stuff, everything to do with the online marketing, it's working with the QuoteMedia team to take the -- to have that specialty to make everything work. And as we're seeing, it's working.

[Operator:]

[Operator Instructions] Our next question comes from Colin Gilbert.

[Colin Gilbert:]

I've noticed that a number of our large and small investors have been in this company now for well over 2 decades and we've got taxes going up, we've got inflation going up, we've got -- you've got your golden parachute ready to go at some point. And I was wondering what can we look forward to as far as an exit strategy to be able to see the money that we possibly have made in this wonderful company. It's a great company. I know you're working hard but we need to get out at some point. And as Jesse Livermore once said, "never take -- or never check the top or bottom of the market, take a little bit out of the middle" so what do you foresee?

[David Shworan:]

Well, that's an interesting question. I mean everybody's got a different exit strategy depending on where they are in life. It sounds -- I know that you've been with QuoteMedia for a long, long time, and you're kind of getting to the point where you want to see the fruits of your labor and -- as I'm sure many do. But as you can see, that we're growing. I remember back in the day when we were trading single digits, and now we're doing a lot better. I think we're getting seen more. We're getting recognized more. We're hitting higher levels. But our goals are still the same. Continued growth, eventually getting onto the NASDAQ probably moving to that exchange, once we hit all the right levels and the timing is right.

[At the same time, we could become part of a bigger entity or there could be acquisitions or mergers that happen. I mean all of these things are always in discussion with different firms all over the place. And we don't know. If something comes up that's the right fit there, then obviously, everybody as a shareholder will know, that will be discussed. But at this point, we're just head down growth, taking market share, planning for the future.:]

[The road map is -- we're always focused on that and expanding as much as we can. And so I can't tell you what your exit strategy is, but this is our game plan and anything can happen any day, but our ultimate plan is to just keep expanding, growing and going onto the NASDAQ.:]

[Colin Gilbert:]

Okay. Onward and upward.

[David Shworan:]

Yes.

[Operator:]

We'll take our next question from Ryan Parker.

[Ryan Parker:]

Congratulations on the quarter.

[David Shworan:]

Thank you.

[Ryan Parker:]

So a quick question. So am I to understand that in the Q1 press release, you guys are predicting increasing revenue growth throughout the year. Are you now saying that's going to be probably more in the 10% to 11% that we had in Q1 and Q2?

[Keith Randall:]

That's correct.

[Ryan Parker:]

Okay. And I didn't understand exactly why that's the case. Could you go through that again quickly for me, please?

[Keith Randall:]

Yes. There's a few factors, not just one. So one of the factors that we mentioned earlier was that we've had some clients that have changed their data that they receive from us or actually more accurately, their exchange data. So that revenue that we bill them is mostly a pass-through revenue. So it will impact our top line, it will reduce our top line, but it also reduced our expenses by roughly the same amount. So it doesn't impact our net income going forward. So that's one of the reasons we did have a couple of onetime adjustments during the quarter to our revenue. So that impacted our revenue as well. And then because our revenue is recurring in nature, it's harder to make up that. But it's mostly customers switching their data to cheaper data options.

[Ryan Parker:]

Okay. And so based on what you're saying, I would presume that the trend is still going to be for higher operating and EBITDA margins in the second half of the year?

[Keith Randall:]

Correct. And keep in mind we also had a $60,000 adjustment to our bottom line. That really is an accounting exercise. It's the fair value adjustment of our preferred stock warrant liability. So -- and that's somewhat out of our control. So that should be taken into consideration as well.

[Ryan Parker:]

Okay. Was that here in Q2?

[Keith Randall:]

That was in Q2, yes.

[Ryan Parker:]

Okay. Was that in the SG&A line?

[Keith Randall:]

Yes. It hits our sales and marketing.

[Ryan Parker:]

Okay. And what was the date -- didn't we sign the BMO contract in November of last year?

[David Shworan:]

I can't remember the exact date. But yes, possibly. I mean, -- so these firms that -- and I was going to add too, the growth in the firms that we're talking to sometimes take longer to close, too. That's the other thing. So the larger the firms, we're looking at pretty long term to do all the reviews, to get all the approvals, all the compliance signed off, et cetera, et cetera. So it's a little bit longer than we like, but that's for larger contracts. They're also typically 4-, 5-year contract. They just take a long time to do.

[But yes, we did close the two banks last year. I can't remember when, but there was a lot of development, integration of trading all of the things that were needed and there are still -- things are still in development. I mean it's still ongoing. I mean, obviously, there's revenue coming in there, but there's also new developments and new projects always ongoing.:]

[Keith Randall:]

And new contracts as well.

[Ryan Parker:]

Okay. So the BMO and Bank of Nova Scotia contracts, those haven't -- would I be correct in saying that those haven't fully ramped up yet?

[Keith Randall:]

Dave, you can probably address.

[David Shworan:]

Yes. they've ramped up, they've ramped up. And they're a constant ramp, right, depending on what usage and all kinds of things. But yes, they're -- I think not all are fully ramped, but getting close.

[Ryan Parker:]

Okay. I think that's all I have for now.

[David Shworan:]

Yes, it's hard to answer some of the questions because they are our clients, and I don't know how much I can talk about clients. That's all. That's tough. I'm sure you understand.

[Ryan Parker:]

Yes, I do.

[Operator:]

Thank you. At this time, we have no further questions in queue. I'll turn the call back to Dave Shworan for any additional or closing remarks.

[David Shworan:]

Thank you. Yes. So thank you very much for joining us. And again, if you have any future questions, feel free to contact Brendan Hopkins, [e-mail], and we look forward to meeting with you in the next quarter. Thanks so much for joining us. Bye-bye.

[Operator:]

This concludes the QuoteMedia Q2 results conference call. You may disconnect your line at this time, and have a wonderful day.